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IRS Form- 2553 - Instructions for Form 2553

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					                                                                                                    Department of the Treasury
Instructions for Form 2553                                                                          Internal Revenue Service

(Rev. December 2007)
Election by a Small Business Corporation
Section references are to the Internal Revenue Code unless              4. It has no nonresident alien shareholders.
otherwise noted.                                                        5. It has only one class of stock (disregarding differences
                                                                    in voting rights). Generally, a corporation is treated as
What’s New                                                          having only one class of stock if all outstanding shares of
For tax years ending on or after December 31, 2007, certain         the corporation’s stock confer identical rights to distribution
corporations (entities) with reasonable cause for not timely        and liquidation proceeds. See Regulations section
filing Form 2553 can request to have the form treated as            1.1361-1(l) for details.
timely filed by filing Form 2553 as an attachment to Form               6. It is not one of the following ineligible corporations.
1120S, U.S. Income Tax Return for an S Corporation. An                  a. A bank or thrift institution that uses the reserve method
entry space for an explanation of reasonable cause was              of accounting for bad debts under section 585.
added to page 1 of the form. See Relief for Late Elections.             b. An insurance company subject to tax under subchapter
                                                                    L of the Code.
                                                                        c. A corporation that has elected to be treated as a
                                                                    possessions corporation under section 936.
General Instructions                                                    d. A domestic international sales corporation (DISC) or
                                                                    former DISC.
Purpose of Form                                                         7. It has or will adopt or change to one of the following
A corporation or other entity eligible to elect to be treated as    tax years.
a corporation must use Form 2553 to make an election                    a. A tax year ending December 31.
under section 1362(a) to be an S corporation. An entity                 b. A natural business year.
eligible to elect to be treated as a corporation that meets             c. An ownership tax year.
certain tests discussed below will be treated as a                      d. A tax year elected under section 444.
corporation as of the effective date of the S corporation               e. A 52-53-week tax year ending with reference to a year
election and does not need to file Form 8832, Entity                listed above.
Classification Election.                                                 f. Any other tax year (including a 52-53-week tax year)
   The income of an S corporation generally is taxed to the         for which the corporation establishes a business purpose.
shareholders of the corporation rather than to the                      For details on making a section 444 election or
corporation itself. However, an S corporation may still owe         requesting a natural business, ownership, or other business
tax on certain income. For details, see Tax and Payments in         purpose tax year, see the instructions for Part II.
the Instructions for Form 1120S.                                        8. Each shareholder consents as explained in the
                                                                    instructions for column K.
Who May Elect                                                       See sections 1361, 1362, and 1378, and their related
A corporation or other entity eligible to elect to be treated as    regulations for additional information on the above tests.
a corporation may elect to be an S corporation only if it
                                                                       A parent S corporation can elect to treat an eligible
meets all the following tests.
                                                                    wholly-owned subsidiary as a qualified subchapter S
    1. It is (a) a domestic corporation, or (b) a domestic          subsidiary. If the election is made, the subsidiary’s assets,
entity eligible to elect to be treated as a corporation, that       liabilities, and items of income, deduction, and credit
timely files Form 2553 and meets all the other tests listed         generally are treated as those of the parent. For details, see
below. If Form 2553 is not timely filed, see Relief for Late        Form 8869, Qualified Subchapter S Subsidiary Election.
Elections on page 2.
    2. It has no more than 100 shareholders. You can treat a
husband and wife (and their estates) as one shareholder for         When To Make the Election
this test. You can also treat all members of a family (as           Complete and file Form 2553:
defined in section 1361(c)(1)(B)) and their estates as one          • No more than two months and 15 days after the beginning
shareholder for this test. For additional situations in which       of the tax year the election is to take effect, or
certain entities will be treated as members of a family, see        • At any time during the tax year preceding the tax year it is
Notice 2005-91, 2005-51 I.R.B. 1164. All others are treated         to take effect.
as separate shareholders. For details, see section
1361(c)(1).                                                            For this purpose, the 2 month period begins on the day of
    3. Its only shareholders are individuals, estates, exempt       the month the tax year begins and ends with the close of the
organizations described in section 401(a) or 501(c)(3), or          day before the numerically corresponding day of the second
certain trusts described in section 1361(c)(2)(A).                  calendar month following that month. If there is no
                                                                    corresponding day, use the close of the last day of the
   For information about the section 1361(d)(2) election to         calendar month.
be a qualified subchapter S trust (QSST), see the
instructions for Part III. For information about the section        Example 1. No prior tax year. A calendar year small
1361(e)(3) election to be an electing small business trust          business corporation begins its first tax year on January 7.
(ESBT), see Regulations section 1.1361-1(m). For guidance           The two month period ends March 6 and 15 days after that
on how to convert a QSST to an ESBT, see Regulations                is March 21. To be an S corporation beginning with its first
section 1.1361-1(j)(12). If these elections were not timely         tax year, the corporation must file Form 2553 during the
made, see Rev. Proc. 2003-43, 2003-23 I.R.B. 998.                   period that begins January 7 and ends March 21. Because

                                                           Cat. No. 49978N
the corporation had no prior tax year, an election made                   • If Form 1120S was filed without an S corporation election
before January 7 will not be valid.                                       and neither the corporation nor any shareholder was notified
Example 2. Prior tax year. A calendar year small business                 by the IRS of any problem with the S corporation status
corporation has been filing Form 1120 as a C corporation                  within 6 months after the return was timely filed, see Rev.
but wishes to make an S election for its next tax year                    Proc. 97-48, 1997-43 I.R.B. 19.
beginning January 1. The two month period ends February
28 (29 in leap years) and 15 days after that is March 15. To              Where To File
be an S corporation beginning with its next tax year, the
corporation must file Form 2553 during the period that                    Generally, send the original election (no photocopies) or fax
begins the first day (January 1) of its last year as a C                  it to the Internal Revenue Service Center listed below. If the
corporation and ends March 15th of the year it wishes to be               corporation files this election by fax, keep the original Form
an S corporation. Because the corporation had a prior tax                 2553 with the corporation’s permanent records. However,
year, it can make the election at any time during that prior              certain late elections can be filed attached to Form 1120S.
tax year.                                                                 See Relief for Late Elections above.
Example 3. Tax year less than 2 1/2 months. A calendar
year small business corporation begins its first tax year on                If the corporation’s principal
                                                                                                                  Use the following
November 8. The two month period ends January 7 and 15                      business, office, or agency is
                                                                                                                address or fax number:
days after that is January 22. To be an S corporation                                 located in:
beginning with its short tax year, the corporation must file
Form 2553 during the period that begins November 8 and                     Connecticut, Delaware, District of
ends January 22. Because the corporation had no prior tax                  Columbia, Illinois, Indiana,
year, an election made before November 8 will not be valid.                Kentucky, Maine, Maryland,                  Department of the
                                                                           Massachusetts, Michigan, New                          Treasury
                                                                           Hampshire, New Jersey, New           Internal Revenue Service
Relief for Late Elections                                                  York, North Carolina, Ohio,                             Center
A late election to be an S corporation generally is effective              Pennsylvania, Rhode Island,              Cincinnati, OH 45999
for the tax year following the tax year beginning on the date              South Carolina, Vermont,                  Fax: (859) 669-5748
entered on line E of Form 2553. However, relief for a late                 Virginia, West Virginia,
election may be available if the corporation can show that                 Wisconsin
the failure to file on time was due to reasonable cause.
    To request relief for a late election when the tax year                Alabama, Alaska, Arizona,
beginning on the date entered on line E ends on or after                   Arkansas, California, Colorado,
December 31, 2007, a corporation that meets the following                  Florida, Georgia, Hawaii, Idaho,            Department of the
requirements can explain the reasonable cause in the                       Iowa, Kansas, Louisiana,                              Treasury
designated space on page 1 of Form 2553.                                   Minnesota, Mississippi, Missouri,    Internal Revenue Service
• The corporation fails to qualify to elect to be an S                     Montana, Nebraska, Nevada,                              Center
corporation (see Who May Elect on page 1) solely because                   New Mexico, North Dakota,                    Ogden, UT 84201
of the failure to timely file Form 2553.                                   Oklahoma, Oregon, South                   Fax: (801) 620-7116
• The corporation has reasonable cause for its failure to                  Dakota, Tennessee, Texas,
timely file Form 2553.                                                     Utah, Washington, Wyoming
• The corporation has not filed a tax return for the tax year
beginning on the date entered on line E of Form 2553.
• The corporation files Form 2553 as an attachment to
Form 1120S no later than 6 months after the due date of                   Acceptance or Nonacceptance of
Form 1120S (excluding extensions) for the tax year                        Election
beginning on the date entered on line E of Form 2553.
• No taxpayer whose tax liability or tax return would be                  The service center will notify the corporation if its election is
affected by the S corporation election (including all                     accepted and when it will take effect. The corporation will
shareholders of the S corporation) has reported                           also be notified if its election is not accepted. The
inconsistently with the S corporation election on any affected            corporation should generally receive a determination on its
return for the tax year beginning on the date entered on line             election within 60 days after it has filed Form 2553. If box
E of Form 2553.                                                           Q1 in Part II is checked, the corporation will receive a ruling
Similar relief is available for an entity eligible to elect to be         letter from the IRS that either approves or denies the
treated as a corporation (see the instructions for Form 8832)             selected tax year. When box Q1 is checked, it will generally
electing to be treated as a corporation as of the date entered            take an additional 90 days for the Form 2553 to be
on line E of Form 2553. For more details, see Rev. Proc.                  accepted.
2007-62, 2007-41 I.R.B. 786.
                                                                              Care should be exercised to ensure that the IRS receives
   To request relief for a late election when the above                   the election. If the corporation is not notified of acceptance
requirements are not met, the corporation generally must                  or nonacceptance of its election within 2 months of the date
request a private letter ruling and pay a user fee in                     of filing (date faxed or mailed), or within 5 months if box Q1
accordance with Rev. Proc. 2008-1, 2008-1 I.R.B. 1 (or its                is checked, take follow-up action by calling 1-800-829-4933.
successor). However, the ruling and user fee requirements
may not apply if relief is available under the following                      If the IRS questions whether Form 2553 was filed, an
revenue procedures.                                                       acceptable proof of filing is (a) a certified or registered mail
• If an entity eligible to elect to be treated as a corporation           receipt (timely postmarked) from the U.S. Postal Service, or
(a) failed to timely file Form 2553, and (b) has not elected to           its equivalent from a designated private delivery service (see
be treated as a corporation, see Rev. Proc. 2004-48,                      Notice 2004-83, 2004-52 I.R.B. 1030 (or its successor)); (b)
2004-32 I.R.B. 172.                                                       Form 2553 with an accepted stamp; (c) Form 2553 with a
• If a corporation failed to timely file Form 2553, see Rev.              stamped IRS received date; or (d) an IRS letter stating that
Proc. 2003-43, 2003-23 I.R.B. 998.                                        Form 2553 has been accepted.
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         Do not file Form 1120S for any tax year before the                 should enter the beginning date of the first tax year for which
   !     year the election takes effect. If the corporation is
 CAUTION now required to file Form 1120, U.S. Corporation
                                                                            it wants the election to be effective.
                                                                                 A corporation (entity) not making the election for its first
Income Tax Return, or any other applicable tax return,
                                                                            tax year in existence that is changing its tax year and wants
continue filing it until the election takes effect.
                                                                            to be an S corporation for the short tax year needed to
                                                                            switch tax years should enter the beginning date of the short
End of Election                                                             tax year. If the corporation (entity) does not want to be an S
Once the election is made, it stays in effect until it is                   corporation for this short tax year, it should enter the
terminated or revoked. IRS consent generally is required for                beginning date of the tax year following this short tax year
another election by the corporation (or a successor                         and file Form 1128, Application To Adopt, Change, or Retain
corporation) on Form 2553 for any tax year before the 5th                   a Tax Year. If this change qualifies as an automatic approval
tax year after the first tax year in which the termination or               request (Form 1128, Part II), file Form 1128 as an
revocation took effect. See Regulations section 1.1362-5 for                attachment to Form 2553. If this change qualifies as a ruling
details.                                                                    request (Form 1128, Part III), file Form 1128 separately. If
                                                                            filing Form 1128, enter “Form 1128” on the dotted line to the
                                                                            left of the entry space for item E.
Specific Instructions                                                       Item F
                                                                            Check the box that corresponds with the S corporation’s
Part I                                                                      selected tax year. If box (2) or (4) is checked, provide the
                                                                            additional information about the tax year, and complete Part
Name and Address                                                            II of the form.
Enter the corporation’s true name as stated in the corporate
charter or other legal document creating it. If the                         Signature
corporation’s mailing address is the same as someone                        Form 2553 must be signed and dated by the president, vice
else’s, such as a shareholder’s, enter “C/O” and this                       president, treasurer, assistant treasurer, chief accounting
person’s name following the name of the corporation.                        officer, or any other corporate officer (such as tax officer)
Include the suite, room, or other unit number after the street              authorized to sign.
address. If the Post Office does not deliver to the street
                                                                                If Form 2553 is not signed, it will not be considered timely
address and the corporation has a P.O. box, show the box
                                                                            filed.
number instead of the street address. If the corporation
changed its name or address after applying for its employer                 Column K. Shareholders’ Consent
identification number, be sure to check the box in item D of
Part I.                                                                     Statement
                                                                            For an election filed before the effective date entered for
Item A. Employer Identification Number                                      item E, only shareholders who own stock on the day the
(EIN)                                                                       election is made need to consent to the election.
Enter the corporation’s EIN. If the corporation does not have                  For an election filed on or after the effective date entered
an EIN, it must apply for one. An EIN can be applied for:                   for item E, all shareholders or former shareholders who
• Online – Click on the EIN link at                                         owned stock at any time during the period beginning on the
www.irs.gov/businesses/small. The EIN is issued                             effective date entered for item E and ending on the day the
immediately once the application information is validated.                  election is made must consent to the election.
• By telephone at 1-800-829-4933.
• By mailing or faxing Form SS-4, Application for Employer                    If the corporation timely filed an election, but one or more
Identification Number.                                                      shareholders did not timely file a consent, see Regulations
                                                                            section 1.1362-6(b)(3)(iii). If the shareholder was a
   If the corporation has not received its EIN by the time the              community property spouse who was a shareholder solely
return is due, enter “Applied For” and the date you applied in              because of a state community property law, see Rev. Proc.
the space for the EIN. For more details, see the Instructions               2004-35, 2004-23 I.R.B. 1029.
for Form SS-4.
                                                                                Each shareholder consents by signing and dating either
Item E. Effective Date of Election                                          in column K or on a separate consent statement. The
                                                                            following special rules apply in determining who must sign.
        Form 2553 generally must be filed no later than 2                   • If a husband and wife have a community interest in the
 TIP months and 15 days after the date entered for item                     stock or in the income from it, both must consent.
        E. For details and exceptions, see When To Make                     • Each tenant in common, joint tenant, and tenant by the
the Election on page 1.                                                     entirety must consent.
   A corporation (or entity eligible to elect to be treated as a            • A minor’s consent is made by the minor, legal
corporation) making the election effective for its first tax year           representative of the minor, or a natural or adoptive parent
in existence should enter the earliest of the following dates:              of the minor if no legal representative has been appointed.
(a) the date the corporation (entity) first had shareholders                • The consent of an estate is made by the executor or
(owners), (b) the date the corporation (entity) first had                   administrator.
assets, or (c) the date the corporation (entity) began doing                • The consent of an electing small business trust (ESBT) is
business.                                                                   made by the trustee and, if a grantor trust, the deemed
                                                                            owner. See Regulations section 1.1362-6(b)(2)(iv) for
         When the corporation (entity) is making the election               details.
   !     for its first tax year in existence, it will usually enter
 CAUTION the beginning date of a tax year that begins on a
                                                                            • If the stock is owned by a qualified subchapter S trust
                                                                            (QSST), the deemed owner of the trust must consent.
date other than January 1.                                                  • If the stock is owned by a trust (other than an ESBT or
    A corporation (entity) not making the election for its first            QSST), the person treated as the shareholder by section
tax year in existence that is keeping its current tax year                  1361(c)(2)(B) must consent.
                                                                      -3-
   Continuation sheet or separate consent statement. If                service center will send Form 2553 to the IRS in
you need a continuation sheet or use a separate consent                Washington, DC, who, in turn, will notify the corporation that
statement, attach it to Form 2553. It must contain the name,           the fee is due.
address, and EIN of the corporation and the information
requested in columns J through N of Part I.                            Box Q2
                                                                       If the corporation makes a back-up section 444 election for
Column L                                                               which it is qualified, then the section 444 election will take
Enter the number of shares of stock each shareholder owns              effect in the event the business purpose request is not
on the date the election is filed and the date(s) the stock            approved. In some cases, the tax year requested under the
was acquired. Enter -0- for any former shareholders listed in          back-up section 444 election may be different than the tax
column J. An entity without stock, such as a limited liability         year requested under business purpose. See Form 8716,
company (LLC), should enter the percentage of ownership                Election To Have a Tax Year Other Than a Required Tax
and date(s) acquired.                                                  Year, for details on making a back-up section 444 election.
Column M                                                               Boxes Q3 and R2
Enter the social security number of each individual listed in          If the corporation is not qualified to make the section 444
column J. Enter the EIN of each estate, qualified trust, or            election after making the item Q2 back-up section 444
exempt organization.                                                   election or indicating its intention to make the election in
                                                                       item R1, and therefore it later files a calendar year return, it
Column N                                                               should write “Section 444 Election Not Made” in the top left
Enter the month and day that each shareholder’s tax year               corner of the first calendar year Form 1120S it files.
ends. If a shareholder is changing his or her tax year, enter
the tax year the shareholder is changing to, and attach an             Part III
explanation indicating the present tax year and the basis for          In Part III, the income beneficiary (or legal representative) of
the change (for example, an automatic revenue procedure                certain qualified subchapter S trusts (QSSTs) may make the
or a letter ruling request).                                           QSST election required by section 1361(d)(2). Part III may
                                                                       be used to make the QSST election only if corporate stock
Part II                                                                has been transferred to the trust on or before the date on
Complete Part II if you checked box (2) or (4) in Part I, Item         which the corporation makes its election to be an S
F.                                                                     corporation. However, a statement can be used instead of
Note. Corporations cannot obtain automatic approval of a               Part III to make the election. If there was an inadvertent
fiscal year under the natural business year (box P1) or                failure to timely file a QSST election, see the relief
ownership tax year (box P2) provisions if they are under               provisions under Rev. Proc. 2003-43.
examination, before an appeals (area) office, or before a              Note. Use Part III only if you make the election in Part I.
federal court without meeting certain conditions and                   Form 2553 cannot be filed with only Part III completed.
attaching a statement to the application. For details, see                 The deemed owner of the QSST must also consent to the
section 7.03 of Rev. Proc. 2006-46, 2006-45 I.R.B. 859.                S corporation election in column K of Form 2553.
Box P1                                                                 Paperwork Reduction Act Notice. We ask for the
A corporation that does not have a 47-month period of gross            information on this form to carry out the Internal Revenue
receipts cannot automatically establish a natural business             laws of the United States. You are required to give us the
year.                                                                  information. We need it to ensure that you are complying
                                                                       with these laws and to allow us to figure and collect the right
Box Q1                                                                 amount of tax.
For examples of an acceptable business purpose for                        You are not required to provide the information requested
requesting a fiscal tax year, see section 5.02 of Rev. Proc.           on a form that is subject to the Paperwork Reduction Act
2002-39, 2002-22 I.R.B. 1046, and Rev. Rul. 87-57, 1987-2              unless the form displays a valid OMB control number. Books
C.B. 117.                                                              or records relating to a form or its instructions must be
   Attach a statement showing the relevant facts and                   retained as long as their contents may become material in
circumstances to establish a business purpose for the                  the administration of any Internal Revenue law. Generally,
requested fiscal year. For details on what is sufficient to            tax returns and return information are confidential, as
establish a business purpose, see section 5.02 of Rev. Proc.           required by section 6103.
2002-39.                                                                  The time needed to complete and file this form will
   If your business purpose is based on one of the natural             depend on individual circumstances. The estimated average
business year tests provided in section 5.03 of Rev. Proc.             time is:
2002-39, identify which test you are using (the 25% gross
receipts, annual business cycle, or seasonal business test).           Recordkeeping . . . . . . . . . . . . . . . . . . . . . . .   9 hr., 48 min.
For the 25% gross receipts test, provide a schedule showing
                                                                       Learning about the law or the form . . . . . . . .            2 hr., 33 min.
the amount of gross receipts for each month for the most
recent 47 months. For either the annual business cycle or              Preparing, copying, assembling, and sending
seasonal business test, provide the gross receipts from                the form to the IRS . . . . . . . . . . . . . . . . . . . .    4 hr., 1 min.
sales and services (and inventory costs, if applicable) for
each month of the short period, if any, and the three                      If you have comments concerning the accuracy of these
immediately preceding tax years. If the corporation has been           time estimates or suggestions for making this form simpler,
in existence for less than three tax years, submit figures for         we would be happy to hear from you. You can write to
the period of existence.                                               Internal Revenue Service, Tax Products Coordinating
   If you check box Q1, you will be charged a user fee of              Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave.
$3,200 ($1,500 if your request is received before February             NW, IR-6526, Washington, DC 20224. Do not send the form
2, 2008) (subject to change by Rev. Proc. 2009-1 or its                to this address. Instead, see Where To File on page 2.
successor). Do not pay the fee when filing Form 2553. The
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